If you’re struggling to repay your debt, you’re not alone. In 2016 alone, Australia’s total personal debt was around $2 trillion, and the average household owed $250,000. Throughout the years, this number has only been on the rise. However, there has also never been more options to find the right debt solution for you.
If you have any type of major debt, like a personal loan or credit card debt, you know how hard it is to pay it down. This can take a major toll on your relationships, mental health, and overall outlook on life. Debt forgiveness is when the lender forgives some or all of your debt, helping you achieve debt payoff faster.
That being said, it’s important to understand how debt forgiveness works before you decide if it’s right for you. Like most things in life, it comes at a cost of its own. Remember, if it sounds too good to be true, it probably is. Keep reading to learn how debt forgiveness works and discover if it’s the right debt solution for your needs.
What Is Debt Forgiveness?
To begin, what is debt forgiveness? This is when a creditor cancels either some or all of your outstanding debt. While this might sound like the perfect solution, it usually comes with strings attached.
In most cases, debt is usually settled not completely forgiven. This is when you agree to pay a specific sum, typically some of the total amount you owe. In exchange, you are “forgiven” from paying the remainder of the debt. While this still reduces your overall debt, it isn’t without its consequences.
Debt forgiveness is seen most often with personal loans and credit card debt. If you’re struggling to pay your debt back on time, you might be able to work with your lender to arrange some form of forgiveness (typically through a settlement). However, you might end up owing money in the form of taxes, plus this could impact your credit score.
Is Debt Forgiveness a Scam?
Unfortunately, in the world of debt forgiveness, there are many companies and programs that target those struggling to pay their debts. Though many “programs” might argue they can completely forgive your debts, it’s important to remember that some things really are too good to be true.
Remember, there are no guarantees. If a company claims they can 100% eliminate your debt, this is a red flag. Qualified debt relief companies like Debt Busters will always review your specific situation to determine which debt solution is right for you. Like all things in life, there is no one-size-fits-all. While some form of debt forgiveness might suit some situations, it won’t fit everyone’s needs.
Debt Forgiveness Vs. Bankruptcy
The only “true” form of full debt forgiveness is declaring bankruptcy. This leads to a lot of confusion between forgiveness and bankruptcy. When you declare bankruptcy, a trustee is appointed to work with you and your creditors to manage your funds. Depending on your income, this could include compulsory payments towards your debts.
It’s important to keep in mind that bankruptcy does not release you from all your debts. You will no longer have to pay unsecured debts, but there are still exceptions. This also has huge consequences on your credit score long-term. Though bankruptcy is a big decision that shouldn’t be handled lightly, it can often be a source of relief for those in certain situations.
Debt forgiveness, because it’s typically in the form of a partial debt settlement, is a less extreme option. Though you might have to make some payment contribution, it is a faster, less intense process. However, like bankruptcy, this is a big decision that should be made under the guidance of a professional.
Alternative Debt Solutions
Last but not least, what are alternative debt solutions? As mentioned above, debt forgiveness isn’t right for everyone. Here are other common debt solutions:
- Deferment: Deferment is when you suspect payments temporarily with the approval of your lender, like if you’re experiencing temporary hardship.
- Refinancing: When you refinance, you change the terms of your loan, typically resulting in a lower rate and monthly cost.
- Consolidation: If you have multiple loans or debt, a consolidation loan turns multiple debts into one. This can save you money in interest, plus it’s easier to manage.
- Repayment plan: Many lenders have alternative repayment plans or agreements available if you’re unable to afford your current payment.
- Bankruptcy: Considered the final option, this helps you break apart from the majority of your debts quickly and effectively, though there are bigger consequences.
Is Debt Forgiveness Right for You?
No matter your situation, it’s important to have a plan when it comes to your debt payoff. Nobody wants to live under the burden of debt, especially if you’re struggling to keep up with ongoing payments.
When in doubt, contact the professionals at Debt Busters today on 1300 368 322. Together, we’ll work through your specific situation to determine the debt solution that’s right for you. You don’t have to handle these next steps alone.